Good day, ladies and gentlemen, and welcome to The Trade Desk First Quarter 2022 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Chris Toth, Vice President of Investor Relations. Sir, the floor is yours.

Thank you, operator. Hello, and good afternoon to everyone. Welcome to The Trade Desk First Quarter 2022 Earnings Conference Call. On the call today are Founder and CEO, Jeff Green; and Chief Financial Officer, Blake Grayson. A copy of our earnings press release can be found on our website at thetradedesk.com in the Investor Relations section. Before we begin, I would like to remind you that except for historical information, some of the discussion and our responses in Q&A may contain forward-looking statements, which are dependent upon certain risks and uncertainties. In particular, our expectations around the impact of the recent pandemic on our business and results of operations in addition to potential supply chain disruptions or other macro events that could disrupt advertising spend are all subject to change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. I encourage you to refer to our risk factors referenced in our press release and in our most recent SEC filings. In addition to reporting our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of the GAAP to non-GAAP results can be found in our earnings press release. We believe that providing non-GAAP measures, combined with our GAAP results, provides a more meaningful representation of the company's operational performance. I will now turn the call over to Founder and CEO, Jeff Green. Jeff?

Thanks, Chris, and thank you, everyone, for joining us today. As you've seen from the press release, we are off to a great start once again this year. For the first quarter, revenue grew 43% compared with last year, our fastest first quarter growth rate in the last 4 years. Our strong growth is a testament to a variety of factors that I want to touch on today and which give us significant optimism for the future. Our performance is especially encouraging because annual advertising budgets are often being reset and reconsidered in Q1, making them historically harder to predict. And this year, the macro environment was challenging with the ongoing global pandemic, war in the Ukraine and the higher rates of inflation around the world. Despite those challenges, we again exceeded our own expectations. I believe we are now firmly established as the default DSP for the open Internet and that we are very well positioned to grow and grab share regardless of the macro environment. We now have over 1,000 customers, representing tens of thousands of advertisers spending on our platform across the open Internet. We continue to see a steady stream of new agencies and brands starting to work with us for the first time as well as existing customers increasing their spend with us. We are seeing strong momentum around key initiatives such as Connected TV, Shopper Data, UID2, OpenPath and our game-changing new data marketplace. In each case, we are working with our advertising clients to drive maximum value from their campaign dollars. And this, in turn, helps us grow our trusted relationships with the world's leading brands and agencies, many of whom are signing long-term strategic partnerships with us. As a CEO, it's always important for me to look at how we are performing…

Thank you, Jeff, and good afternoon, everyone. As you have seen in our results, 2022 started out strong with solid Q1 financial performance and execution despite the current macro environment. Q1 revenue was $315 million, a 43% increase and an acceleration in growth from a year ago. In Q1, we benefited from a digital advertising environment that is leaning increasingly towards data-driven advertising and measurable results. This was evidenced by the continued strength in CTV, which again led our growth from a scale channel perspective. Solimar adoption is over 80%, and we continue to see promising results as customers are utilizing Solimar to leverage more data elements than they did previously. More data-driven precision improves ROI for customers, and we believe this helps spin the flywheel of our business faster. We are also starting to see green shoots in our retail media business, with Q1 representing our first full quarter of operations in this space. We have brought on additional retail media partners into the platform and are cautiously optimistic as spend continues to ramp up. With the durable top line performance in Q1, we generated $121 million in adjusted EBITDA or about 38% of revenue. The $121 million in adjusted EBITDA represents a 72% increase from a year ago. In Q1, we continued to benefit from temporarily lower-than-expected operating expenses, partly driven by the virtual environment. Even recognizing that, I'm proud of our continued ability to consistently grow our top line revenue while generating meaningfully positive adjusted EBITDA and cash flow that has enabled our cash and short-term investments balance to end the quarter over the $1 billion mark for the first time. In the current environment, our demonstrated ability to invest for growth and self-fund our high-growth rates through profitable long-term cash flow generation sets us up well…

[Operator Instructions] And the first question is coming from Shyam Patil from SIG.

Congrats on the results. I had a couple of questions. First one, Jeff, when we look at your results and your outlook, they look a lot better than what we’ve seen from a lot of other ad-funded companies during earnings. Can you just talk about what you think is driving your outperformance? And then second question, can you talk a little bit about how you see the rest of the year shaping up?

You bet. Thanks, Shyam. Appreciate it. So I – as I look at the outperformance for this quarter, and I just look at all the things that would write in this quarter, it’s hard not to start with connected television. I mentioned in the prepared remarks, the CTV had more positive changes than ever. And I don’t know that I could have made up a better script in terms of just seeing companies like HBO move from sort of testing phase to scale. And then Netflix and Disney+ talking about ads were really created in an environment that is really optimal for ads. And of course, we already had great relationships with Paramount and Peacock and Sky and so many of those that you think of as the AVOD leaders to now have really everybody entering into this world of choice that is driven by ads. It’s just a very exciting phenomenon. But I’m also just very encouraged by the fact that, of course, there’s macro pressures and noise and uncertainty that everybody has seen costs from war and inflation. And of course, the stock market bouncing around a lot. But in that environment, what we’ve historically seen is that the moment when CMOs and marketers get very deliberate about where they’re going to spend money, and they become very data-driven in the choices that they’re making. And in our case, that means they’re spending more with us. So I’m just incredibly encouraged by all the things that we're –we’ve seen this quarter and how it sets it up for the rest of the year, which gets to the second half of your question. So with all these moves in advertising, especially from the global players of CTV, I think it really sets up the second half of the year…

And the next question is coming from Youssef Squali from Truist Securities.

Two, if I can. Jeff, 3 to 4 years ago, you were already on the strong opinion or the strong belief that Netflix has to offer an ad-supported model. That was just a matter of time. How do you feel about your chances of potentially partnering with Netflix around that opportunity and – or the potential risk of Netflix potentially building its own DSP, Amazon? And Blake, Q2 EBITDA implies a pretty big sequential and year-on-year drop, I think, to that 33%. Can you maybe just flesh out the biggest areas of investments and whether there is a typical kind of conservative built into that or – and just how should we think about that for the remainder of the year? A –Jeff Green: Yes. Great. So you’re right, I’ve been saying for more than half a decade that I believe that Netflix will eventually have to show ads. And that’s really based on the fact that I believe that consumers want choice. And that while Netflix has done a phenomenal job of preserving an amazing experience for consumers that at some point, that becomes cost prohibitive because you have to just keep raising prices, that is exactly what’s happened over the years. And they’re now at a place where I believe they will benefit from offering that choice. I think they have more pressure on them. Because of that history, I believe they have more pressure on them to create an amazing ad experience than anybody in the streaming competition, if you will. It’s partly because of that, that – you may know, David Wells, who was the previous CFO of Netflix joined our Board almost 5 years ago. So we’ve had a great relationship with Netflix because of him, and I’m extremely optimistic in the potential for us…

And Youssef, to follow up on your question on the EBITDA for Q2. Just to frame it up, I’m really happy with our situation and where we are. Like we mentioned on last quarter’s call, we do expect in 2022 to increase the pace of our investment as we focus on the long-term growth of our business. And that’s got a support from a very strong business model that produces strong free cash flow and has a really, really solid balance sheet. Our Q2 forecast reflects that. It includes accelerating hiring across the business, particularly in engineering, business development and account management roles that really play a huge factor in driving our long-term growth. We also expect our in-office expenses to start ramping this year to prepandemic levels. And we also anticipate hosting more employee events to get the team together. But in terms of this year, Q1 EBITDA was very strong. I’m comfortable with our EBITDA trajectory and where things stand over the remainder of the year. And like we said last quarter, we do expect the operating expense structure of the company to be better than it was prior to the pandemic. And as I’ve always said, this business is really built for and I’m really optimistic about driving meaningful EBITDA and free cash flow as we scale. So I think that lots of great opportunities in front of us, and I feel pretty good about it.

The next question is coming from Matt Swanson from RBC Capital.

I’ll add my congratulations on the quarter. Jeff, maybe staying on the theme of CTV and Netflix. You mentioned still having an abundance or maybe an overabundance of demand for CTV. Well, with the upfront is coming up, could you maybe give us an updated view on the supply-demand curve, especially for premium CTV content? And how you think about the addition of Netflix and Disney+ with all that content coming online and whether or not we’ll see lower CPMs? And then I guess as was kind of a follow-up. Jeff, you mentioned that obviously, you saw Netflix coming from a long term – a long time away. When we think about the maturity curve now, though, for any subscription model hitting that threshold of payers, do you think this is going to change how new products launch from here on out when they see a Disney and Netflix and HBO Max all leading ads? Is – are we going to see any subscription-only products still get launched?

First of all, I appreciate the congratulations. We’re extremely excited about the results and as well as just all the things going in our direction, most notably on CTV. So appreciate that sentiment. So first, let me just address head on the concern that you raised in your first question. Will CPMs be lower as a result of this additional inventory? And can I just describe a little bit the demand? So the demand is really off the charts. And it’s in large part because people are moving away from traditional cable television where there are just tons of ads and you’re paying more and getting less than you have in a very long time. And so as a result, when you’re adding new inventory, it’s desperately needed. There’s demand already lined up. And the thing that is really great about the way that we're seeing players like Disney or what I’anticipate Netflix will do or HBO Max and then those that have been doing it for a while is that they’re, of course, in order to continue subscribers, which is the way that they continue to gain subscribers, which is the way they’re all graded, they have to have a great ad experience. They can’t alienate users. That means that they have to provide relevance, and they have to provide very few ads. So that means we’re going to see scarcity for a while, for as far as we can see in the future, honestly. And that means that there will be demand and that it is the best way for them to get incremental subscribers. Because I believe that those economics are becoming obvious – as obvious to everyone, so much so that the biggest names in the business seem to pivot very quickly that we’re just SVOD, I don’t think it’s strategically smart for anybody who’s just entering the space now to start with SVOD only. It’s like any product where over time as it evolves, if you launch the iPhone today or a new smartphone and it doesn’t have features that rivals the iPhone 13, and instead, it rivals the features of iPhone 1, you’re just not going to be competitive. You’ve got to be at parity with the current state of the market. The current way to compete is to offer consumers choice. And I believe that, that becomes increasingly important for anybody entering streaming wars with hopes of competing with the biggest players in the space.

And the next question is coming from Vasily Karasyov from Cannonball Research.

I have a couple, if I may. One on Europe. You said in the prepared remarks that spend did slow down around the start of the war in Ukraine, but then recovered in April. So can you tell us your thought maybe in more detail about what the advertising environment is in Europe right now and where it’s going in your view? The second question is about political. You did make some comments on it, but wanted to see if you could give us more detail. So broadcasting companies have been reporting, and they’re saying that they see a record political cycle spending so far. So can you tell us, please, how you feel you are positioned? And do you think this could be some incremental revenue growth this year from political?

Yes. Sounds great. I’m going to ask Blake to actually take a stand of both of them, and then I’ll also take time with both of them. So Blake? A –Blake Grayson: Sure. Thanks, Vasily, for the question. So with regards to Europe, just first to put into context, historically, our growth has been driven by the very strong position we have in the U.S. Europe represents a single-digit share of our spend. CTV has been the primary driver behind our growth in the U.S., but European CTV also gaining share. I think in the prepared remarks, we talked about that more than doubled – they grew in the triple digits in Q1. We did see more of that gap – of a gap between North America and international in the second half, but it did – it recovered a bit in April and recovered back to what we were seeing in January. But there is still some room to improve. I think that, that’s not a surprise, I think, for people who follow the space. The thing I think about when I think about opportunities like that is when customers become more deliberate with spend and they focus on the most efficient investment opportunities, that’s when The Trade Desk tends to shine because from my perspective, we proved it out in the second half of 2020 when we saw that as people needed to be more deliberate, they were focusing on the areas of investment that have the highest ROI, then they were consulting with us, and it worked out actually quite well in our favor. So I’m super optimistic about that. With regards to political, yes, it’s a great opportunity for us, and we’ll see how this ramps up because it’s going to probably start ramping up for us over the summer into November, obviously. You’ve seen reports that talk about midterm election spend on par or better than the 2020 presidential elections. The one thing I would encourage you to think about as you go through the forecasting is that seasonality is going to be different than we saw in 2020, so you’ll need to take that into account. There’s still a lot of factors to consider like the number of competitive races out there and stuff. But we do believe we’ve set ourselves up to be the kind of go-to platform for this political advertising versus maybe social media platforms and such. And we’ll have more color on this as we progress in 2022, more in the second half of the year, but definitely look forward to some tailwinds there. And then whatever, Jeff, you want to add on top.

Yes. So first, I agree with everything Blake just said. He covered almost all of it. I’ll just add a little bit more color. So first, I’ve been to Europe twice in the last 4-ish months, and that’s in large part because there’s just such an opportunity shaping up in connected television. In various markets, we’re seeing just a lot of movement from even some of the companies that previously hadn’t embraced ads and certainly programmatic open Internet ads and are now doing just that. And now with pressure from some of the biggest global players, we’re seeing them move relatively quickly, which is why we saw CTV up over 2x in Q1 in EMEA. So just very excited by the momentum. Even in the very rare cases where there’s pauses or there’s – I’ve seen some supply chains coming from Ukraine that are a little bit more affected in EMEA, the sentiment is very positive as it relates to their intentions to spend with us in the rest of the year. So I’ve got both of the trips in the last 4 months, more positive than when I got there and believing that what most people are doing is exactly what we described in the prepared remarks, which is when there’s some economic pressure or they have to do more with less, they become very data-driven, and they become closer partners of ours during that time. And that’s exactly what I’m seeing everywhere around the world and maybe as much in EMEA as anywhere else. On the political, I’ll just underline what Blake said on – the seasonality is a little bit different in midterm and election than it is in the presidential election. So we expect to see more hit the second half. We also heard similar reports of just this potentially being record-setting for political on the macro. But I’ll just say lastly, on the political, we – I’m really proud of what we’ve proven in the last couple of election cycles, which is that we can objectively represent the Democratic party as well as the Republican party that we can support a fair process and that buying in programmatic and in a data-driven way, there’s room for both parties to run a better process than what they have in other mediums, including, in some cases, in social. So we’re really excited about what we’ve proven in the past and believe that we’ve set ourselves up to do more for both parties and even the more independent than what we have ever done before. So excited about what that means for the second half of the year in particular.

And the next question is coming from Jason Helfstein from Oppenheimer.

I’ll just ask one. Just want to focus back on CTV. So for a very long time, Google wanted to get into this, and the media companies don’t want them basically doing programmatic CTV. While they let them do YouTube TV, right, that YouTube isn’t doing the ads. And we’ve seen media companies try to own technology assets – ad tech assets and have not been good at it. And I guess, Jeff, your perspective, I mean, given what we’ve now almost seen as kind of like the undoing of some of the media mergers, where there’s like a clear idea that content owners need to be content owners and maybe just be the best of that because it’s so competitive, just how do you see how that kind of impacts your space on the board, and ultimately, to be potentially like the default partner to help the media companies with this transition?

Yes. So I think your assessment sort of that’s built into your question is spot on. I just – I believe the tolerance for conflict of interest among media companies and technology companies is lower than in almost any other place. So I think it’s really interesting that Google decided to go to the upfronts this year. They scheduled their upfronts right on top of Disney’s, of which is just sort of bad form and certainly not a way to win friends. And I think that’s somewhat representative of the way they are being received among many of the media companies. So I think it’s just such an amazing backdrop for us to be in the CTV space, being one of, and in many cases, the very biggest provider of ad demand for some of the biggest media companies in the world, and they’re leaning into our partnerships in a way they have never before. It’s just really incredible. And that’s largely because they know who we are. We are very clear on the value that we provide. We are not trying to compete with them. We don’t own any content. We are constantly – well, publicly and privately reassuring them that we will not own content. And we do that so that we can create a more effective supply chain, but also so that we can partner with them and just be very upfront about who we are and what we do because we think that’s the best way to be competitive today. And so because we think that they are, to some extent, doing the exact same thing, they – even companies like that, that were somewhat hybrid content and technology companies have largely become a content manufacturing machine. And so it just creates opportunity for us to partner because we’re all becoming very clear on who we are and what we do rather than some tech behemoth that wants to be everything, right? And Amazon competes with nearly every business and the S&P 500 at this point. And I think that becomes increasingly problematic, especially in the intersection of media and tech.

And the next question is coming from Brent Thill from Jefferies.

Maybe if you can give us a quick update on Walmart and any critical milestones that you’ve had and how you look at that through the second half of ‘22. A –Jeff Green: You bet. Yes. If there’s any topic that didn’t get its due, it’s – I don’t know, it’s a rival between our data marketplace and our shopper marketing efforts. And so as I did mention, though, we just finished our first full quarter with Walmart. We saw over 200 advertisers. These are all very large brands – provide test budgets during that time. We expect even more large brands and more expansion as we continue forward. And we think that this is going to be just an amazing growth driver over the next 5 years. We, of course, saw some early tests and some amazing results from CPGs, as you might expect. But I don’t know that enough has been said about what is being done by companies like Walgreens and Target and Drizly, and this Target’s division Roundel because what they’re largely doing is really changing the way measurement works in CPG and really anything that’s primarily built – I’m sorry, bought off-line because what it makes possible is the ability t’ measure from the –me’you show the ad to the time somebody buys the product and measure that end-to-end using retail data instead of a walled garden or technology companies sort of grading their own homework data. And so by having that collection there, we now put together this mosaic that really creates this amazing marketplace that we even call the measurement marketplace for anybody that’s selling products that are largely bought in those stores. And then, of course, those stores spin their flywheel faster. So the green shoots are fantastic. We’ve merely scratched the surface, but we’re very excited about the start that we’ve had and very excited about our partnerships with Walmart, Walgreens and Drizly, Roundel, and GoJet and Flybuys and so many others. I’m not even listing half of the internationals, but very excited about all the progress.

And the next question is coming from Mark Zgutowicz from The Benchmark Company.

Jeff, I was just hoping you could maybe define what you consider the large publisher market in terms of having, I guess, the majority of loyal signed-in users and how many you think you need to sign on to UID2 for your platform to come close to replacing cookie scale, when and if Google shuts down cookies? And then just in terms of UID2, what's the status on finding an administrator for UID2, and particularly the importance of that in Europe? Appreciate answers to those.

You bet. So in terms of loyal signed-on users, it's actually a fairly complicated question because there is a question of how many users are signed on, but then there's also like how connected are those to sign-ins on other websites. So to sort of boil it down to what I think is the most important and easiest to explain concept, there is some amount of the Internet that needs to be logged in, in order to create the ability to model or predict what's happening on the rest of it. Instantly, this is exactly the same way that companies that use log-ins today like Google or Facebook as they're a primary identity mechanism rather than cookies. That's exactly why they're in a good position is that they'll use that and then model on some additional percentage. In general, we've seen this from some of the independent data companies. You really need only about 10% to be logged in, in order to model well on all the rest of it. I actually think that the numbers can end up being much, much higher than that in terms of what will actually be logged in and what will actually be available on UID if the trends that we predict continue. So that's the first part of your question. On the -- can you remind me the second part of your question?

Yes. So I was just wondering if you – what the progress is on finding an administrator for UID2? By administrator, meaning somebody who’s willing to accept liability for violations of GDPR. A –Jeff Green: Yes. So because of the fact that – so first, there’s a European issue, and then there’s the administrator issue in other parts of the world as well, including in the United States. The position that we’ve taken so far is that we wanted to make UID2 an open source project so that it was available to everybody and sort of administering or managing that code base so that it could be available to everybody was the most important first order of business. And that we’ve done with the IAB, and we’ve done that based here in the United States, but it’s available everywhere in the world. As it relates to administration of its operation, because essentially, you’re handing over control at that point, it’s a double-edged sword. You can hand over a liability. You can also hand over some of its future. That’s something that we want to be very certain is good and secure before we hand that off. So we’re in no rush to do that, whether that’s with [IV] in the United States or any entity in Europe. And because in Europe, everybody is essentially taking some amount of risk if you take on the role of controller. So I don’t believe that it’s an effective way to distribute or mitigate risk at this point. So there’s nothing – we’re in no rush to do that. And instead, what we want to make certain that we do, especially in Europe, but really everywhere around the world, is develop a system that can scale and make sure that early on, we partner with companies that we believe are being responsible, that are doing the right thing and that we establish very clearly the quid pro quos and opt-outs that are in compliance with GDPR. And we believe that EUID is the most GDPR-compliant ID in the world, but we will make it interoperable with others that we believe are also doing the right thing, and that’s going to create a better Internet, one that I think is really important for Europe and optimistic that we’ll continue to see scale. But we’re much more early days in EUID than we are in UID2 because there’s just a lot more things to consider and a much more political environment. So I’m just excited of the progress at this point.

The final question will be from Michael Morris from Guggenheim.

I’ll try to squeeze in 2 final questions. The first one is on the pretty consistent comment that you made, Jeff, about The Trade Desk being the default DSP for the open Internet. Obviously, this implies potential for a pretty universal adoption across buyers. So I’m curious if you can elaborate on where you are now in terms of partner penetration. You referenced over 1,000 customers. But any frame of reference or what that means for full penetration, sort of how that’s been trending would be helpful. And the second question is a little bit of elaboration on the impacts of Netflix and other peers introducing these global ad-supported businesses, which are pretty new to market, of course. Does this drive an acceleration in your investment internationally? Any other kind of fundamental changes that this makes to the industry? A –Jeff Green: You bet. So as it relates to partner penetration, I’m trying to think of the best way to quantify it. In general, I believe that we have only scratched the surface. I’m sometimes referencing last year, we had over $6 billion flow through the platform, but we’re still looking at a nearly $1 trillion TAM in terms of what’s spent in total global advertising. So we’re still just merely scratching the surface and a tiny amount of what’s possible. When you look at how many of those dollars are spent in the Fortune 500, while we’re very encouraged by what we’ve done inside of the Fortune 500 among the biggest advertisers, when you become the default for them and learn how to support the most sophisticated in the world, of course, it then gives you room to do similar things for midsized businesses, midsized agencies as we’ve always supported agencies. We continue to expand among – more and…

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.